Would there be an interest in a thread where people can share ideas on potential investments or current investments?

I'd want the thread to avoid discussion of the major blue chip stocks (INTC, JNJ, AAPL, MSFT, IBM, MCD etc) unless you have something really unique to add -- there is just so much material out there on these companies.

Also it'd be nice to avoid discussion on the financials (BAC, C, JPM, GS, MS) etc as these companies have been discussed to death as well.

I would participate in it and have considered making a thread like this before.

Nothing wrong with discussing big names or financials I don't think. Most of the material out there on the big companies is pretty superficial, and certainly not interactive, so I definitely think there is value (pun apologized for) in allowing discussions of those types of names.

If you eliminate the well-known blue chips, and financials, how many people are going to have any idea what they are talking about that they didn't read in the paper, blog, M*, etc from someone else whose talents they cannot remotely evaluate?

Let me pick a random unknown 'cheap' stock....say, PLOW, because it'll be cold soon on Wall St. Who is going to be able to properly analyze that here and make consistently accurate estimates of valuation, threats, margins of safety [or lack thereof]....pretty much nobody that I've seen at 2p2.

Don't get me wrong, love to see more informed stock discussion, but the people who know how to find alpha generally don't give it away for free, esp on small-cap stocks where volumes are typically tiny with a wider B-O spread and it can take several days if not weeks to get filled on a full position.

Also, when some of the sharper posters point out that, say, CSCO is a bargain at $14 [and liquidity in that name is huge], you get dozens of n00bs saying 'ZOMG, Cisco sucks, LOL@u' etc. Without a filter mechanism these thread will just have a signal-2-noise ratio of 0.00000001%.

tl/dr; or you could put a writeup in the trading thread when you put the position on, or create a monthly 'L-T 'value' thread'.

Would there be an interest in a thread where people can share ideas on potential investments or current investments?

Yes, I'd be interested. I may or may not have much time in the next few days (got some stuff going on...), but I would not mind sharing ideas as long as no one puts money into something based on what I say and gets upset if it doesn't work out.

FWIW, I have a small personal portfolio that is currently about 75% stock/25% cash plus my wife and I have 401ks that I try to decide what we should do with.

I lean toward the graham/buffet approach and have some contrarian tendencies. I do not believe I have any possibility of 'beating the market' on time frames measured in something smaller than years.

I would not want to rule out large cap stock discussions as there are often good opportunities there.

I wouldn't touch gm, dell, or rim right now. Decided recently not to buy pfizer. I've owned ED since 2008 but would not recommend it now. Have been trying to decide when/if to sell it. I know nothing useful about EMR.

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Originally Posted by NajdorfDefense

Don't get me wrong, love to see more informed stock discussion, but the people who know how to find alpha generally don't give it away for free

Personally, I don't worry so much about alpha as finding the right risk/reward ratio for me. Yes, I could do it with SPY/Bond Fund, and for many people that might be the right approach, but I prefer to be more involved than that. It's more interesting and there is an off chance I'll learn something... Also, I have enough broad market exposure in the 401ks.

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Originally Posted by NajdorfDefense

tl/dr; or you could put a writeup in the trading thread when you put the position on, or create a monthly 'L-T 'value' thread'.

The trading thread isn't really the place for this type of discussion. And a "monthly" L-T value thread is silly. I don't buy anything I expect to hold less than a year (although I'm always open to the possibility that I made a mistake or the business might go downhill).

Maybe the solution would be to start a skype group for people to discuss stuff like this? I would be interested in something like this.

I def wouldn't cut out blue chip stocks though. If you get rid of those then how are people supposed to know the companies you're talking about? It's not like you can pick a random small cap stock and find 10 people that have an informed opinion on it.

3 replies in a couple days. i guess there is just not enough interest from people who would actually have something meaningful to contribute. I was gonna do a presentation on a couple sub $5 billion dollar companies.

Najor, sometimes even if someone is not fully qualified to analyze a company from a financial perspective they will have something to offer to the discussion. For example, I made a bunch of money off a company that was involved in IP litigation and I got fairly good analysis from a couple of my friends who are hot shot IP attorneys in NYC. Also since most of you guys are a bit younger than I am (I'm in my early 30s), and assuming many of you are in your early 20s -- you will see the world very differently from me.

For a discussion like this to work, all you need is to have smart people who are passionate about investing/learning about companies (hopefully with different expertise, background etc) participate . Part of the reason that stocks can be "mispriced" is that Wall Street often has the same perspective on things -- often they are right, but sometimes they are very wrong. Sometimes all you need is the right perspective.

Najor, sometimes even if someone is not fully qualified to analyze a company from a financial perspective they will have something to offer to the discussion.

Yes, but I don't see how that's pertinent to a value discussion. Same is true for growth stocks, IPOs, distressed firms, BK, restructurings, mergers, so I hope they share regardless!

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Also since most of you guys are a bit younger than I am (I'm in my early 30s), and assuming many of you are in your early 20s -- you will see the world very differently from me.

When I was in my early 30s I was working at Lehman, and I haven't worked there for several years now. I do agree that for the most part a 22-yr old -- even a very smart one -- will have no idea what a 'value' stock is, how to find one, analyze one, evaluate its merits and drawbacks, relative to market, industry, other parts of the capital structure, and etc. Half the professional managers I know can't do it accurately either. It's incredibly hard.

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For a discussion like this to work, all you need is to have smart people who are passionate about investing/learning about companies (hopefully with different expertise, background etc) participate .

Disagree, love to be proven otherwise. I'm all for hearing about awesomely undervalued stocks that I don't follow.

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Part of the reason that stocks can be "mispriced" is that Wall Street often has the same perspective on things...

This is sort of a silly trope - for every buyer there's a seller. QED. To think you, or anyone here, knows 'what Wall St is thinking' is prima facie absurd.

I can't think of a single, solitary security on Wall St where even 80% of participants have the same opinion -- not the USTs, not the USD, not Apple, not Lehman debt, not MBS, not prime ABS, not commodities, not China, not EUR, not Japan or Brazil markets, not banks, not anything -- much less a single equity.

You may be confused by hearing on CNBC what a firm's 'strategist' says, or their equity guys say "Oh, we love LULU," but that's completely meaningless and no one pays any attention to it. Researchers and strategists and traders that have consistently demonstrated their ability to find alpha get snapped up by HFs, and eventually start their own: see Steve Mandel - went from regular analyst to top-ranked sell-side analyst to Tiger Mgmt to founding Lone Pine. There's an endless list of guys like that in all parts of the market - Richard Perry, David Shaw, Eric Mindich, Chase Coleman, ad infinitum.

He can find alpha and make hundreds of millions on his own picks, the sell-side guy at, say, Jefferies cannot. And the vast majority of research no longer comes from WallSt anyway, both due to the democratization of information on the Internet, and for the reasons listed above.

Nobody talented stays at a Big Bank and hopes their boss pays them $1, 2 even $5m a year when they can make 2 & 20% at a buddy's HF, or open their own. Even if it takes them a couple years to raise real money, most people with alpha-capturing ability prefer to work for themselves after a few years on Wall St.

Going back to my earlier example of PLOW, I think it is very cheap, but no one at 2p2 is likely to have helpful, actionable information on it that sheds light on the degree of its 'valueness.'

When I was in my early 30s I was working at Lehman, and I haven't worked there for several years now. I do agree that for the most part a 22-yr old -- even a very smart one -- will have no idea what a 'value' stock is, how to find one, analyze one, evaluate its merits and drawbacks, relative to market, industry, other parts of the capital structure, and etc. Half the professional managers I know can't do it accurately either. It's incredibly hard.

I'm around this age and think that I have the ability to identify potential values in the market. Obviously I still need a lot of work and experience but I could probably add some analysis in some cases.

I'll take a look at PLOW (this weekend I hope) and post my thoughts. Even if I'm way off the mark, if you critique my thoughts it would still make me a better investor and make the thread a success imo.

When I was in my early 30s I was working at Lehman, and I haven't worked there for several years now. I do agree that for the most part a 22-yr old -- even a very smart one -- will have no idea what a 'value' stock is, how to find one, analyze one, evaluate its merits and drawbacks, relative to market, industry, other parts of the capital structure, and etc. Half the professional managers I know can't do it accurately either. It's incredibly hard.

If you want warren buffet like performance it's incredible hard, but I don't think that going for a value approach and outperforming is that hard if you have discipline. There is a decent amount of research that suggests that going with a quantitative approach outperforms. Greenblatts Magic Formula is a known example, but even simpeler strategies such as simply buying the 50 companies in the SP500 with the lowest PE seem to work.

I posted this analysis in another thread but it didn't get much responses so I'll x-post it here to hopefully jumpstart the discussion/ thread. Point out any flaws or anything I didn't consider.

Asta Funding (ASFI)

“Asta Funding specializes in the purchase, management, and liquidation of performing and non-performing consumer credit. Asta Funding purchases delinquent credit card and consumer loan accounts at a deep discount and then attempts to collect on them. These accounts have typically already been written off as losses by credit companies and are acquired by Asta through auctions and brokers. Asta also purchases bulk receivable portfolios that include both distressed and non-conforming loans.”

During 2007, the Company purchased it’s largest portfolio and used debt to finance it. Because of the economic downturn, the company had to significantly impair this portfolio and switch to the cost recovery method of accounting that won’t let them realize income until costs have been recovered. Currently, these ARs and their related related debt are located in a wholly owned subsidiary, Palisades. The good news about this is that the debt is non-recourse to the parent company. The end result is an almost option-like function where there is no downside and some upside if the ARs start to perform better and profit flows to the parent.

In my most conservative analysis, I decide to net AR- Cost Recovery account with its corresponding loan (the 92 million and 76 million). (I should note 7.7 million of the Cost Recovery Account is owned by the parent but I decided to take it out of my conservative analysis because the company uses this method when it is uncertain of future cash flows). The end result is 91 million in cash, 38 million in AR- Interest method, and 4.5 in other liabilities. This yields a NAV of 124.5. The current market cap is 119.2 million.

Hidden Cash Flow

Under the interest method for AR, the company calculates carrying value by discounting the estimated cash flows over the years they are expected to be received. As a result, once the estimated cash flows have been received, there won’t be a carrying value for the AR. However, the portfolios can still produce income. The company calls such portfolios “zero basis portfolios.” The cash flows of these portfolios have been material: $17.8 million for the the 6 months ended 3/31/2011, $34.3 million for fiscal year 2010 , $40.7 million for fiscal year 2009 and $45.3 million for fiscal period 2008. I expect this trend to continue but I will be conservative and only give the company credit for $20 million.

The first 3 assets’ values have already been discussed. The AR- Cost Recovery account are the accounts not part of the under performing portfolio discussed previously times 80% to account for increased risk. The tax asset is one half what is reported on the B/S (any help valuing this would be nice. I know the company will get some benefit from the asset but I see they are still paying some taxes). The other receivable is taken directly from the B/S. I multiplied the B/S account of Other asset by .5 to determine its value. Other liabilities are a sum of a few liability accounts. I completely removed the subsidiary’s associated A/R and loan because the loan is non-recourse.

Catalyst: The company announced a share repurchase program of $20 million taking effect the third week of August.

Conclusion: I calculated a current value of 165,172,000 compared to the market cap of 119,200,000, which implies an upside of close to 40%. I believe this to be a relatively safe investment due to the large amount of cash on the company’s B/S.

A couple of the value investing blogs I follow have written up ASFI many times and there are definitely some problems that have kept me from buying.

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I believe this to be a relatively safe investment due to the large amount of cash on the company’s B/S.

Won't they need to use that cash to pay down debt or buy more receivables at some point? Not to mention the $20 mill being used for buybacks.

What the hell happened in 2009? I don't know what happened that year but it looks like it's tough to call this investment relatively safe when they are capable of a year like that.

Have you paid close attention to how much they used to pay for receivables and how much they've paid more recently? What about their competitors? Seems like an easy enough business so if there is a lot of low hanging fruit it will attract a lot of greedy fruit-eaters and quickly leave only high hanging fruit, which ASFI may not be able to get at all, and if they do it will surely be on less attractive terms when there was more plentiful low hanging fruit.

Have you read the SumZero article that is discussing the short thesis on them? Here is a section of it that would worry me if I was long:

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The distressed consumer receivables market has been increasing in the past 5 years. The total purchased portfolio under the four biggest operators (AACC, PRAA, ECPG and ASFI) increased from $1.1bn in 2006 to $2bn in 2011. However, the portfolio size of ASFI has been shrinking from the peak of $550mm in 2007 to $125mm in 2011. It is the only company with declining receivables.

The market share has declined substantially from 24% in 2006 to only 8% in 2010. Unlike the competitors which aggressively bought delinquent portfolio at cheap price during financial crisis, ASFI was relatively quiet after the credit crunch. The low market share painted a dull picture of ASFI to buy high quality non-conforming portfolio in a highly competitive market and raised question for ASFI to sustain the business with a lack of scale advantage.

In addition, the players have been taking more risk to take on portfolios with longer time since delinquency. According to Federal Reserve, the consumer lending 30+ delinquency has been dropping since the financial crisis, especially the credit card portfolios which are most sought after by the industry players. The delinquency rate dropped from 6.61% in Q1 2009 to 3.89% in Q1 2011. The question becomes if there are fewer and fewer delinquent loans in the market, how can the players sustain to purchase more “quality” non-performing portfolios? As indicated by the industry participants, the answer is they keep buying riskier portfolios which they don’t buy before (like older delinquent loans, portfolios collected by many collection agencies before and etc) to maintain the loan reinvestment level.

Won't they need to use that cash to pay down debt or buy more receivables at some point? Not to mention the $20 mill being used for buybacks.

No. The debt is non-recourse to the parent. The only CFs that will pay down the debt are located in the sub. They will have to buy more ARs, which they are doing but not at a rapid pace because they didn't see many good values as of their conference call. The buyback is a good program (don't most people want to buy companies selling below liquidation?) and gives them an alternative use of funds.

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Originally Posted by Xaston

What the hell happened in 2009? I don't know what happened that year but it looks like it's tough to call this investment relatively safe when they are capable of a year like that.

They booked a big impairment (a non-cash event) on non-performing receivables, which are located in the sub and were purchased before the market downturn.

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Originally Posted by Xaston

Have you paid close attention to how much they used to pay for receivables and how much they've paid more recently? What about their competitors? Seems like an easy enough business so if there is a lot of low hanging fruit it will attract a lot of greedy fruit-eaters and quickly leave only high hanging fruit, which ASFI may not be able to get at all, and if they do it will surely be on less attractive terms when there was more plentiful low hanging fruit.

These are good questions and I probably should look more into the competitive landscape of the business. However, by purchasing this company below liquidation value, you are buying this company at a discount to what it would cost competitors to set up a similar company.

Have you read the SumZero article that is discussing the short thesis on them? Here is a section of it that would worry me if I was long:

Yes. Despite making a number of flaws, I think they touch upon the most significant risk, what to do with the cash? Hopefully, they will buy back the $20 mil in stock and then they have about 3 options: more buybacks, acquire new ARs, or make an acquisition. They should only acquire new ARs if there are good values in the market. The author notes that other firms are acquiring so ASFI should be too. Only time will tell if the competitors bought the ARs cheaply and ASFI should have been acquiring or if ASFI is right to have not been buying. The thing that worries me the most is a bad a acquisition. ASFI hired an adviser in this space and discussed the possibility of making an acquisition.

The author notes that other firms are acquiring so ASFI should be too. Only time will tell if the competitors bought the ARs cheaply and ASFI should have been acquiring or if ASFI is right to have not been buying.

While it's true that they shouldn't necessarily be buying while their competitors are it does raise questions.

If ASFI just had a big impairment on non performing receivables why should we trust their judgement of what and when they should be buying receivables over their competitors? I'm not saying we should trust them less, I'm saying why should we trust them more?

Their business model is buying receivables and collecting on them right? How good of a business model is it if they no longer find receivables worth buying?

Going back to my earlier example of PLOW, I think it is very cheap, but no one at 2p2 is likely to have helpful, actionable information on it that sheds light on the degree of its 'valueness.'

I spent a little time looking at PLOW, but didn't really find a reason to keep digging when it's trading at a price to management's normalized FCF multiple of 9ish. I would love to hear your thoughts though.

Yes, but I don't see how that's pertinent to a value discussion. Same is true for growth stocks, IPOs, distressed firms, BK, restructurings, mergers, so I hope they share regardless!

When I was in my early 30s I was working at Lehman, and I haven't worked there for several years now. I do agree that for the most part a 22-yr old -- even a very smart one -- will have no idea what a 'value' stock is, how to find one, analyze one, evaluate its merits and drawbacks, relative to market, industry, other parts of the capital structure, and etc. Half the professional managers I know can't do it accurately either. It's incredibly hard.

Disagree, love to be proven otherwise. I'm all for hearing about awesomely undervalued stocks that I don't follow.

This is sort of a silly trope - for every buyer there's a seller. QED. To think you, or anyone here, knows 'what Wall St is thinking' is prima facie absurd.

I can't think of a single, solitary security on Wall St where even 80% of participants have the same opinion -- not the USTs, not the USD, not Apple, not Lehman debt, not MBS, not prime ABS, not commodities, not China, not EUR, not Japan or Brazil markets, not banks, not anything -- much less a single equity.

You may be confused by hearing on CNBC what a firm's 'strategist' says, or their equity guys say "Oh, we love LULU," but that's completely meaningless and no one pays any attention to it. Researchers and strategists and traders that have consistently demonstrated their ability to find alpha get snapped up by HFs, and eventually start their own: see Steve Mandel - went from regular analyst to top-ranked sell-side analyst to Tiger Mgmt to founding Lone Pine. There's an endless list of guys like that in all parts of the market - Richard Perry, David Shaw, Eric Mindich, Chase Coleman, ad infinitum.

He can find alpha and make hundreds of millions on his own picks, the sell-side guy at, say, Jefferies cannot. And the vast majority of research no longer comes from WallSt anyway, both due to the democratization of information on the Internet, and for the reasons listed above.

Nobody talented stays at a Big Bank and hopes their boss pays them $1, 2 even $5m a year when they can make 2 & 20% at a buddy's HF, or open their own. Even if it takes them a couple years to raise real money, most people with alpha-capturing ability prefer to work for themselves after a few years on Wall St.

Going back to my earlier example of PLOW, I think it is very cheap, but no one at 2p2 is likely to have helpful, actionable information on it that sheds light on the degree of its 'valueness.'

Naj I don't know if you follow EGY. Obviously it's not nearly as undervalued now as it was a few weeks ago--but I've been in and out of it repeatedly this year. What's your opinion if you have one?

3 replies in a couple days. i guess there is just not enough interest from people who would actually have something meaningful to contribute. I was gonna do a presentation on a couple sub $5 billion dollar companies.

OP - I'd be very interested if you start something like this. I think too many people spend too much time drawing lines on charts and not enough time figuring out if a company is actually making money.

I'll share mine: 30% of my portfolio is in GRVY and I'm going to add more. Please share any thoughts you may have.

Current Assets: ~$75 million
Total Assets: ~$126 million
Total Liabilities: ~$35 million
Market Cap: ~$32 million
Revenue per year: ~$40 million

No debt, EPS has been consistently 6c-8c a quarter.

Just from the financials, GRVY appears to be quite good. It's cash flow positive, it has no long term debt, has a lot of cash on hand and is currently trading well below its NCAV. GRVY is also quite famous, deriving the vast majority of its revenue from Ragnarok Online, which is a very well known and quite profitable MMORPG. If you ask people what's the first thing they think of when you say MMORPG, probably WoW will be the majority answer, but the majority in Asia (and not an insignificant minority in the west) will say Ragnarok Online.

Catalyst: The REALLY long awaited sequel, RO2, is scheduled to be released first quarter 2012. Final open beta test is expected to be released within the next 2-3 months. People have been waiting for over 5 years for this game. To give an idea how anxious people are in getting to play RO2, when the first closed beta test was announced only in Korean and released only in Korean, 70,000 people from around the world tried to log in simultaneously and crashed their server.

It is possible that they may delay the release of RO2 even further depending on the outcome of the beta test. However, it will eventually be released, as they are deriving the majority of their revenues from 9-year old RO1 and have realized that they must do everything they can to ensure RO2 is good.

Worst case scenario: RO2 generates no new revenue and merely cannibalizes from people playing RO1. However, GRVY has contracts to license the game out to various companies for $40 million + % in revenue. That will at least double their yearly revenue of $40 million, making the stock a double bagger plus.

Best case scenario: A new renaissance in MMORPGs, just like what street fighter 4 and Marvel versus Capcom 3 did for fighting games. In that case, the sky is the limit. Maybe it becomes a ten bagger then, though I am not that optimistic.

Realistically, we won't know until perhaps 1.5 years after release. However, because the stock is priced so below its NCAV, there isn't too much risk in holding, other than paying ADR fees. It's also worth a hold to see how their Ragnarok DS and Ragnarok Odyssey for the Sony Vita end up doing, as they may end up being surprise sleepers. They are also starting to expand into the mobile phone and tablet market as well.

Conclusion: An upside of at least 100%, even in a worst case scenario, unless they get nuked by North Korea or something.

Though one concern that I have: It releases RO2, revenue doubles as expected and....nobody cares about the stock or the company so it doesn't go up, so it stays at a market cap of $32 million, even though they will make that much in net profit per year. Is that possible?